Ford’s newest problem is scary

Winter is coming to the automotive industry. Except winter, in this case, isn’t the approaching weather or zombies, it’s the coming onslaught of highly subsidized, innovative, affordable and well-received Chinese electric vehicles (EVs). Investors have likely heard that the US is planning a 100% tariff on imported Chinese electric vehicles, but what you may not know is that the tariff may not matter, and that’s a problem for many automakers, especially Ford Motor Company (F 0.94%) — here’s why.

What have you done for me lately?

Much has been made of Ford’s entry into the EV market. On the one hand, the company’s Mustang Mach-E, F-150 Lightning and E-Transit led the company to the No. 2 spot in electric vehicle sales in the US. adze. On the other hand, it’s also true that in the first half of 2024, the company lost nearly $2.5 billion in its Model e division.

Additionally, although Ford’s EV sales rose 61% in Q2, with nearly 24,000 EVs sold, Ford’s Model e EBIT margin was a loss of 99.5% for the second quarter. Ford has taken many steps to delay electric vehicles, refocus on hybrids, cancel a future line of electric SUVs, scale back plans for battery manufacturing, and ultimately push back on electric vehicle investments of approximately 12 billion dollars.

The biggest takeaway, however, was that Ford announced it had made a secret bet a while back with a “skunkworks” team to develop a low-cost electric vehicle platform with a target price of around 25,000 dollars — a selling point that is sure to attract mainstream consumers and get them into an EV. The release date is rumored to be in 2026.

Here’s the problem: That $25,000 would have little to no competition in the US right now, but some Chinese EVs can reach that price, and tariffs might not be enough to stop it, if BYD is any indication.

Great rates, no problem

While Ford’s potential $25,000 EV developed by its skunkworks team is a lofty goal, BYD would currently have the cheapest EV on the US market at under $25,000 even with the 100% tariff. Even Tesla, with all its early-mover advantage and manufacturing prowess, has yet to break the $30,000 mark.

BYD’s most affordable electric vehicle, the Seagull EV, starts at just under 70,000 yuan, or $10,000, in China. It’s part of the reason why 51 percent of new passenger vehicle sales in China are electric vehicles, and the market is years ahead of the West in terms of development.

The Alliance for American Manufacturing has gone so far as to warn that China’s EVs represent a potential “extinction-level event” for the US EV industry. Ford CEO Jim Farley recently explained at a Wolfe Research conference that if you can’t compete with Chinese automakers, “20 percent to 30 percent of your revenue is at risk.” Stellantis CEO Carlos Tavares echoed that sentiment when he told reporters, “The Chinese offensive is probably the biggest risk facing companies like Tesla and ourselves right now.”

What does it all mean?

Of concern to investors is that even with a 100 percent tariff on imported Chinese EVs, the vehicles and their price tags could still undercut the US EV industry. This is especially true for Ford, which has delayed several projects and EV development and focused on its low-cost platform.

The eventual entry of Chinese electric vehicles into the US is absolutely something investors need to watch out for, as it is a development that will change a short-term investment thesis. The US EV industry will have a problem with Chinese EVs when they arrive, sooner or later, and that means big losses for the Ford Model e unit could last longer than anticipated.